September is Life Insurance Awareness Month

September 1, 2012 and we are focused on helping families get their financial future in order. So why am I excited about Life Insurance Awareness Month? To put it simply, I know why Life Insurance is an important Financial tool.  Do you?

When I ask people if they have car insurance they tell me yes, of course they do. When I ask them if they expect to get into an accident every time they get into their car, they tell me “No, of course not.” The insurance is there just in case there is an accident. Then I ask them if there is any guarantee that they will have an accident while they are driving, the answer is no again. The last question that I ask them, “is there any guarantee that you will die sometime in your life?”

People can tell you when they were born, when they were married, even when their children were born. The one thing that nobody knows is when he or she will pass away. We hope that it will be a long time in the future, but there is no guarantee.

On November 4, 1989, I married the most wonderful person that I have ever met in my life. We bought a house, had a son that has grown into a fine young man, and we were planning for our future children together. Unfortunately, life sometimes gets into the way of your plans.  I lost my wife in 1998 to cancer, which was not in our plans. Thank goodness, we had someone looking out for us and we purchased some life insurance for both her and me. 

Most people believe that Life Insurance is only for a situation like this; but what if we had both lived to see our retirement years. There are insurance policies that have the ability to accumulate cash value that help fund your retirement. These policies have some very important features that I talk about all the time, as part of a comprehensive financial strategy.

First, while your money is growing, you do not have to pay taxes on the growth every year; the IRS calls this Tax-Deferred Growth. That is a lot better than the money I have in my bank. Next, your money in these policies is protected from your creditors. This means, in most cases, your creditors cannot sue you for the money in your policy.

These policies, usually, have a built-in loan provision that you can use to access the money. The IRS does not consider the loan as “Income”. As long as you follow the IRS guidelines when pulling the money out of the policy, you have no taxable responsibility. Unlike some of the IRS Qualified retirement plans, there are no age restrictions on when you can access the money, like there is in an IRA or a 401(k) program.

Finally yet importantly, there is still the Life Insurance component, which allows your beneficiary to have an Income-Tax Free transfer of the policy’s Death Benefit based on the type of program structured for you.

In summary, You can’t lose the money through a lawsuit, you do not pay taxes while you money is growing, you do not pay income taxes when you pull money out, you can access the money when you need it, and you family does not pay income taxes when you pass away.  Cool!

Here is the downside; you need to have a financial professional, that understands how these programs work, sit down with you to ensure that you are getting the right program for you and your family. There are many different factors to consider before purchasing these policies and you do not want to make a mistake that will have the IRS coming to you because it was not set up correctly or you did not access the money properly.

By the Way, the sooner you start one of these programs, and the longer you fund them properly, the more that cash value will help fund your retirement.

Until Next Time…

The Truth, The Whole Truth and then there are Statistics…

There are many people shouting their version of the “Truth” when it comes to the Healthcare Reform Act. I have been looking into some of their claims. What are the long-term effects of this Act, and how it will affect the people that I encounter every day? Let us call them Everyday People…

How will this make changes for the folks that work at the restaurant that I had lunch in last week? First, the staff is mostly Part-time employees and to run the restaurant 24 hours a day, 7 days a week, it takes about 65 people. How is the company classified under the “50 Employees Rule”?

Great question!

The rule states that an employer with a minimum of 50 employees can be fined up to $2,000 per person if they do not provide Healthcare insurance AND one of their employees accepts Government Subsidized Healthcare. Hmm, Interesting…

Traditionally, employers were not required to provide benefits for Part time employees. Will this remain true? If so, are they counted against that 50 Person Rule at a discounted rate, let us say ½ a person for each Part Time Employee.

I wonder if the employer will be looking at how he can reduce his liability. If he fires 16 people, then he does not have to worry. Too bad those 16 people will still be out of insurance because they will be unemployed.

Oh, and if they are counted against the rule, will employers have to start offering the benefit for Part Time employees. That could cause another problem, because there are changes in the Insurance coverage portion of the bill that will cause insurance premiums to go up.

First, there is the reclassification of Coverable Children to age 26. This means that employers will have to cover 18-26 year olds under the parent’s policy, regardless of dependency status. How will that additional benefit effect Income tax reporting in the future? I will save that for a future discussion.

Second, there is no longer a need to wait for coverage if you have a pre-existing condition. Insurance companies are now required to provide coverage regardless of the individual’s health. That means the person with a chronic condition, that requires a lot of health care maintenance, gets coverage immediately. That is great if you have just such a condition. The problem that comes from this, Insurance companies will be increasing their costs so that they can absorb the large expense. Therefore, if you are perfectly healthy, you get to look forward to higher medical Insurance premiums.

Third, there is a major deduction of Pre-Tax money that an individual can contribute to the Flexible Spending Account (FSA). This is an account that allows families to put money away now and then, In the future, they can submit qualified medical claims to reimburse them for their expenses. Under the Health Care Reform Act, their ability to bank that money in case of a future need has been reduced from $5,000, to $2,500. That means they can save less money and they now have an additional $2,500 Taxable Liability that did not exist before. On a side note, there are many deductions that were accepted for the reimbursement that have been eliminated under this Act.

WOW! Just looking at the folks that brought me a very delicious meal and seeing how the new Act will affect their lives has my head spinning.

Don’t get me wrong, I feel that there are some, no matter how small, valid points in the details of this Act. I am, however, afraid of what will happen, in the end, when Health Care becomes cost prohibited.

This Act is a stepping-stone towards a government run healthcare system, as our neighbors to the north enjoy. Although, there are a lot of them who come to the U.S. for treatments because they are not able to get their needs met at home…

Until next time…